As you would expect with leasehold residential property the answer to who should insure the building is defined in the lease.
In a simple lease for a flat in a block (other than in Scotland) there will be two types of parties: the freeholder and the leaseholders. There will be covenants or schedules applying to each party and one of these should be an obligation to insure the building. Normally this will apply to the freeholder. The lease should specify that this obligation should be to insure against the full reinstatement cost of rebuilding. It will normally also state that the party responsible for insurance is to use all money received from the insurer to reinstate or repair the property.
There are exceptions to this, such as maisonettes and leasehold houses (also with two types of parties: the freeholder and the leaseholders) where the obligation to insure may rest on the lessee. Where this is the case you can expect to find a further provision allowing the freeholder to insure the property if the leaseholder fails to do so, or fails to provide proof of having done so within a defined timeframe.
More complex leases include a third party in the form of a Residents Management Company (RMC) or similar body which will normally be responsible for arranging the day-to-day maintenance of the building. These leases with three types of parties involved are commonly referred to as tri-partite leases. In recent years, these have become popular with some developers as they enable the lease to be sold to a company that invests in residential leases, deriving income from insurance commissions and lease extensions. Care however needs to be exercised when dealing with tri-partite leases as it is important to understand which party should insure and if so in what name.
Following the Commonhold and Leasehold Reform Act 2002 the formation of a Right to Manage Company (RTM) normally allows the RTM to take over the insurance responsibility from the freeholder along with adopting responsibility for the interpretation of the insuring clauses of the lease.
The above is an extract from Robertsons Insurance Principles for Leasehold Flats. Click here to purchase a copy.
